Financing Homes With Short Leases

RESIDENTIAL MARKET

Not all banks will finance homes on short leases

Some banks here say they are willing to finance new homes with shorter leases, but buyers might have to pay off these loans more quickly, or borrow less.

They were responding to the Urban Redevelopment Authority's (URA) announcement last week that it will offer its first residential site with a variable lease option of 30, 45 or 60 years for sale.

The 1.02ha land parcel in Jalan Jurong Kechil can also be developed for retirement housing.

It is on the reserve list.

Banks The Straits Times spoke to said a range of criteria such as the loan-to-value ratio, the property's value, the applicant's income and credit worthiness, and the acceptability of the collateral are assessed when a loan application is considered.

However, at least one bank said it would not offer loans to buyers of homes with a 30-year lease.

Ms Chia Siew Cheng, United Overseas Bank's (UOB) head of secured loans (personal financial services), said the maximum loan term depends on the borrower's age. If the property is leasehold, the remaining lease period must be at least 35 years at the end of the loan term.

"In this instance, UOB's criteria would apply only to the 45-year and 60-year leasehold properties, and the maximum loan tenor the bank could potentially offer for these would be 10 years and 25 years respectively," she added.

Other banks, however, say the decision would be made on a case-by-case basis.

DBS Bank is one of them. Ms Lui Su Kian, its managing director and head of deposits and secured lending, said that "the introduction of shorter-lease residential properties is relatively new to the market, and we are reviewing the demand for such leases".

She added: "Currently, we offer mortgages for properties with leases of more than 60 years. However, we do offer financing for residential properties with shorter leases on a case-by-case basis."

Ms Phang Lah Hwa, OCBC Bank's head of consumer secured lending, said the maximum loan term for home loans is 40 years, or the period from when the loan is taken to when the borrower turns 75, whichever is shorter.

"Banks generally reduce the loan tenor or the quantum of financing if the remaining lease falls below 40 years on loan maturity. The bank will review home loan applications for projects with short-term leases on a case-by-case basis," she added.

Mr Peng Chun Hsien, head of secured finance solutions at Citibank Singapore, said: "The remaining lease on a property is a consideration when determining the tenure of a home loan. Therefore, a shorter home loan tenor may be granted for properties with shorter leases."

The URA said that it will monitor the outcome of the tender before deciding on whether to offer more residential sites with variable lease terms, which have been introduced to provide more development options for tenderers.

It also noted that retirement housing is still a new and untested concept in Singapore.

As the Jalan Jurong Kechil site is a pilot site, the type of retirement housing development, and how this would differ from the more conventional flats or condominiums, will depend on the developer's business model and development concept, a URA spokesman said.

For instance, the developer has the flexibility to propose various unit sizes in the development, including studio apartments.

It will also not be subject to the guidelines that cap the number of homes that can be built in each non-landed development outside the central area.

"This is to allow the developer to test out his business model, which could include studio apartments to cater to senior citizens.

"We will take into consideration the development outcome for this site in formulating the guidelines for future retirement housing developments," the spokesman said.

Source: The StraitsTimes – 13 September 2012